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Insurance for the Modern Business World
Published Friday, December 23, 2016

Small businesses want to focus on selling and delivering their products and services, but an unexpected loss, scam, lawsuit or emergency can quickly derail that focus, and recovering from the loss can be a matter of survival.

Having the right insurance coverage can mitigate risks. Here are three coverages you may not have considered:

Wage and Hour Defense Coverage

Federal wage and hour rules that go into effect Dec. 1, issued by the U.S. Department of Labor, require that employees earning less than $47,476 annually be paid overtime. This decision raised the threshold for overtime from $26,600 to capture more of the middle class. Many employers are still grappling with compliance with only a month to go.

Under the revised regulation, most of these employees must be considered non-exempt for purposes of overtime eligibility. For employers, there can be no wink and a nod when it comes to working more than 40 hours in a seven-day period. That compensable time includes work-related emails, phone calls, texts, trade shows and special events. Any time over 40 hours must be paid at time and a half. There are limited exceptions, but they are few in number. 

Once the law goes into effect, federal audits and employee lawsuits will capture violators. Small businesses can buy Wage and Hour Defense coverage under their employment practices liability insurance. Defense costs are one of those blind sides that small businesses never imagine could happen to them, yet a claim can sink an enterprise in no time. With attorneys’ fees running anywhere from $200 to $500 per hour plus paralegal time, forensic accounting and depositions, a small business may see tens of thousands of dollars evaporate from the bottom line in a matter of months.

Willful violations of the law will likely result in denial of coverage, compounding the risk of business failure.

Business owners need to review employee handbooks and job descriptions with their attorney and have their employees sign an acknowledgment that they have read and understood the conditions under which they may be allowed to or request to work overtime.

Remember, a plaintiff’s attorney is going to coax and coach an employee who chooses to dispute their employer’s compensation. And they won’t miss a beat to build a successful case that casts the employer as willfully violating the law. 

Adequate Business Income Limits

Another weak link for small business owners is inadequate business income limits. Business income insurance pays for the actual loss of business income that you sustain due to suspending business operations while restoring covered damage or destruction to your property.

Fully understanding the extent of the business’s cash flow requirements is the underpinning of providing appropriate coverage. Though most businesses buy the coverage, they may not accurately calculate how much they need.

The agent and business owner need to dig into all operations, sources of income, full- and part-time payroll, benefits and contingency planning. Failure to fully capture those costs and contingencies can expose the owner to out-of-pocket co-insurance costs they may be unable to shoulder due to insufficient insurance coverage.

To ensure timely payment, a business needs to make a timely report of a claim, keep records of conversations and receipts, and give the claim adjuster access to everything associated with the loss.

Social Engineering Coverage

It’s late on a Friday and the boss is traveling in Italy on a buying trip. The bookkeeper gets an email requesting immediate transfer of $10,000 to an account in Venice so the boss can purchase wholesale goods. This has all the hallmarks of social engineering: A time zone difference, urgency, a routing number and a stressed boss at the other end of the transfer.

Unfortunately, the email is bogus but the destination account is all too real and, well, accounting complies. Cybercrime comes in all flavors and forms but the objective is to take the money. Social Engineering Coverage is one of those specific coverages that needs to be explicitly added to a business insurance program.

These and other cyber coverages are just emerging as separate policies or policy endorsements. They are addressing real threats from people sitting comfortably in an undisclosed location knowing there are well-intentioned people just waiting to be exploited.

Monique Ruth is an account executive at Clark Insurance, an employee-owned independent insurance agency with offices in NH, Maine and Massachusetts. For more information, visit clarkinsurance.com.

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